FOX FACTORY HOLDING CORP Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Simplifying and consolidating footprint: Completed closure of one of three Taiwan facilities, with cost benefits expected in Q2. Additional footprint consolidation efforts underway.
• Portfolio optimization: Focus on highest-performing items and strategic growth categories, driving gross margin improvement and efficient capital allocation. Continued record new product launches.
• Working capital management: Improved supply chain practices, including inventory management and sourcing strategies in response to tariff dynamics.
• Cost reduction program: Ongoing actions to realize $25 million of cost savings by year-end, with benefits starting in Q2.

Segment Performance

• Powered Vehicles Group (PVG): First quarter net sales were $122.1 million, up 3.4% over the prior year quarter. Segment adjusted EBITDA margin improved sequentially by 50 basis points to 11.8% due to strong cost controls.
• Aftermarket Applications Group (AAG): Net sales increased 9.9% to $111.9 million from $101.9 million in the prior year period. Adjusted EBITDA margin was 15.2%, representing a sequential step up of 330 basis points.
• Specialty Sports Group (SSG): Net sales increased 6.6% to $121 million from $113.5 million in the prior year period. Segment adjusted EBITDA margins decreased to 19.3%, a temporary sequential decline from the fourth quarter due to seasonality, lower overhead absorption, and investments in product engineering. The consolidation of one Taiwan facility began in Q1 with financial benefits expected in Q2.

Guidance

• Reaffirmed full-year 2025 guidance: Sales in the range of $1,385 million to $1,485 million, adjusted earnings per diluted share in the range of $1.60 to $2.60, and full-year adjusted effective tax rate 15%-18%.
• Second quarter 2025 guidance: Sales in the range of $340 million to $360 million and adjusted earnings per diluted share in the range of $0.32 to $0.62.
• Tariff impact: Quantified $50 million gross impact on full-year cost of goods sold, with mitigation strategies like supply chain mitigation and pricing actions underway.

Risks

• Tariffs: Potential significant impact on cost of goods sold, with ~5% exposure. Mitigation strategies in place but ongoing uncertainty.
• Market volatility: Uneven market conditions across product lines, challenging near-term performance.

Question and Answer

Q: James Duffy from Stifel asked about bicycle OEM partners' expectations regarding tariff influence and dealership partners.

A: Mike Dennison responded that there's a wide spectrum of responses from OEMs, with no significant negative demand seen yet, and positive outlook on bike demand.

Q: Larry Solow from CJS Securities inquired about international opportunities and Gainesville plant updates.

A: Mike Dennison mentioned international growth in areas like wheels, baseball bats in Japan, and bike business in China, and highlighted Gainesville plant's progress with increased insourcing of machine parts.

Q: Michael Swartz from Truist Securities asked about tariff offsetting and pull-forward of sales ahead of tariffs.

A: Mike Dennison discussed various mitigation strategies across businesses and stated no significant pull-forward of sales ahead of tariffs yet.

Q: Anna Glaessgen from B. Riley Securities asked about product mix improvement and segment concentration.

A: Mike Dennison said it's across segments, focusing on ultra-premium products and diversified portfolio expansion.

Q: Bret Jordan from Jefferies inquired about PVG growth breakdown between new motorcycle customers and organic sales.

A: Mike Dennison explained automotive was as forecasted, powersports was softer than expected, and motorcycle sales offset softness in powersports.

Q: Scott Stember from Roth Oman MKM asked about SSG growth rates and bike retail pull-through.

A: Dennis Schemm noted bike business stabilized and Marucci performed well despite timing of product launches; Mike Dennison was cautious on calling bike recovery yet but positive on lower-priced fork launch performance.